Energy and the Environment

Updated Nov. 23, 2009 12:01 a.m. ET

After decades of drifting, the U.S. is moving toward a more-coherent energy policy. For the energy industry, that is both a boon and a threat. The broad goals of any new legislation and regulation are clear enough: to cushion the volatility of energy prices and curb greenhouse-gas emissions.

But the details are fuzzy, and those details will determine whom the energy transformation helps and hurts. Figuring that federal limits on greenhouse-gas emissions are inevitable, for instance, the industry wants the rules to come from Congress rather than from the Environmental Protection Agency. The reason: It thinks it can lobby Congress to cushion the blow more easily than it can lobby the EPA.

Jeffrey Ball, the Journal's environment editor, moderated the task-force discussion on energy and the environment. Here are edited excerpts of the presentation of their priorities to the CEO Council.

JEFFREY BALL: There were a couple of broad pieces that I think are important to reflect—areas that the group thought were underappreciated. One is that people tend not to understand the scales that are the reality in the energy industry, that different areas of energy supply get thrown around without an appreciation of what really powers this world of ours.

Second to that point, is that the vast majority of global energy comes from fossil fuels, and is predicted to continue to stay that way for several decades. And third, in terms of using energy more efficiently, it's probably not prudent to suggest that people are going to change their behavior of their own volition. And so there are going to have to be more structural reforms in the economic setup of the energy industry.

Let me just ask Lynn Elsenhans to talk about the first priority, which has to do with domestic energy supply.

LYNN ELSENHANS: To put this in context, the EIA [Energy Information Administration] forecasts that energy demand globally of all types will grow more than 50% in 20 years, and that in the U.S. it will grow as much as 30%. And further, petroleum will be 60% of total demand, and, if you put all fossil fuels in there, it's probably over 80% of the demand.

ENLARGE

Lynn Elsenhans, Chairman, President and CEO Sunoco, Inc.
Paul Morse

So anything that doesn't address that is really going to ignore some fundamental problems if we're going to keep energy both secure and affordable, along with clean.

The key concepts that were put forward on this point were, one, the concept of diversification. We need it all. We have a lot of demand out there. To keep it secure, affordable, we need to develop it all. The second point is more of an emphasis on domestic resources and the development of domestic resources. Most countries in the world do take the resources they have and make the most of them, and the U.S. should do the same.

We have vast resources of coal. We now have, through new technologies, vast resources of natural gas. If we had more access, we could have additional oil and gas from both conventional and unconventional sources. And yes, if we're going to have clean energy and zero emissions, we have to vastly expand the amount of nuclear energy in this country, and we should embrace all forms of renewable energy.

Pursuing Efficiency

MR. BALL: The second priority had to do with efficiency broadly defined.

LOUIS CHÊNEVERT: We had a discussion that suggests that at all levels in the supply chain, as well as in the consumer end, there's opportunities to substantially improve efficiency, as well as emissions.

At the WSJ's CEO Council, Sunoco Inc. CEO Lynn Eisenhans's tells U.S. Rep. Edward Markey she believes U.S. policy is headed in the direction of tabbing refiners as "losers," disadvantaging the sector and meaning more job losses in the U.S.

We had discussions on what can be done with coal power plants or traditional plants to improve their emissions. Technology is available today. It's a question, sometimes, of return on investment and having a level playing field and knowing that you can get return for the investments that you'll put in.

The same is true, whether it's residential or commercial buildings.

There's a lot of technology available today that could reduce energy consumption substantially, and there's a need for labeling, for regulation that would force, basically, the adoption of some of these technologies that would have substantial impact on energy and the environment. In the discussion, I noted the fact that for large buildings, the recipe is there today to reduce consumption by 70%. Thirty percent is available easily—it's probably got less than a five-year payback.

The Need to Store

CARLOS GHOSN: If I can add one point to what has been said about energy efficiency, the ability to store energy is absolutely important.

Today, we know that we don't have any system allowing you to store energy, which means that when you invest in capacity, you invest in function of the peak consumption. Because if you don't invest in function of the peak consumption, you're going to create a situation of blackouts, which are very damaging.

ENLARGE

Carlos Ghosn
Paul Morse

So I think focusing and developing capacity to store energy for individuals, for facilities, for public services, for plants is absolutely fundamental to have a much higher efficiency in terms of use of energy.

MR. BALL: There was an interesting discussion about what policies would be necessary to induce moves toward efficiency. And one of the discussions was whether there ought to be a call for higher energy prices—that is, a direct call as opposed to a sort of less-direct call in the form of a cap-and-trade policy. There was a feeling that this group did not want to call for higher energy taxes, but that cap-and-trade was going to do that.

So why don't we move into that—the third priority. There were those in the group who didn't want to recommend anything on carbon regulation, and indeed, who thought that the best policy would be no government action to restrict carbon emissions.

There was a larger group that felt it didn't really matter what the group wanted in that regard, because carbon regulations are coming, and so the group ought to make some suggestion as to what is the lesser of two evils.

There were a few points of agreement here.

First of all, that the EPA should not be regulating carbon emissions—that this ought to be up to Congress to act.

Second, that remembering in the design of any cap-and-trade system that fossil fuels provide about 80% of global energy today, and are likely to continue to do that. And so to the degree that a cap-and-trade program incentivizes a diversity of energy resources, it needs to keep that reality in mind.

And third and really important, the point of global competitiveness—that the U.S. should not do anything on carbon regulations in the absence of action by other countries, particularly countries in the developing world.

Frustration With the Grid

MR. CHÊNEVERT: With regard to upgrading the electrical grid, there are so many roadblocks to overcome that eventually, it gets frustrating and it's always sub-optimized. If we're going to really succeed at energy efficiency, and the introduction of renewables, without an efficient grid it's not going to happen. So this is something that's a very high priority for the group and it's something that needs to be addressed fairly quickly if we're going to make substantial changes in the efficiency of the whole system.

MR. BALL: This was one area in which there was really no disagreement on the desire for increased federal control. It was very interesting that if the government is going to essentially demand that energy resources be diversified, it has to give business the tools to make that happen.

MR. GHOSN: On the fifth recommendation, the main point about transportation is the fact that today in the U.S, and in practically all the developed or developing countries, we're all net importers of oil.

Second, it is the only fuel for transportation. That means that if there is a problem with oil, the whole transportation system is paralyzed. And we came to the conclusion that oil is not the enemy, but too much dependence on oil becomes something that is very precarious.

So by saying diversify the transport system, we're saying, because it's a strategic consideration and also an economic consideration, a lot of effort should be made—partnerships between governments, states, municipalities, companies, car companies, utility companies—in order to find the best system adapted to the country or adapted to a specific city to bring electricity as a diversification from oil for transportation.

MR. BALL:There was a sense in the group that this was a particularly interesting area for actual business-government cooperation.

MR. GHOSN: Exactly. This is something that cannot happen because one company wants it or because one municipality or one government wants it. You need the technology, so you need the technology of the battery, you need technology from car makers, you need utilities to step in.

In fact, you know, we're signing a lot of agreements with the utility companies across the globe who are saying, well, this is an opportunity for us to increase our market share or increase our presence.

You need governments to be interested in putting their acts behind their will of being less dependent on oil or creating an environment where you have less emissions. And in fact, we're seeing today very clearly which are the governments and the municipalities standing up and saying OK, what do you need for this to become a reality? What kind of infrastructure, what kind of partner do you need? Without partnership, it can't work.

Agreement From Markey

ALAN MURRAY: Ed Markey is the chairman of the special select committee that the House of Representatives established to deal with climate-change issues. You've had a chance to look over the recommendations; you've heard some of what they had to say.

EDWARD MARKEY: I agree with your plan. I think that the priorities that you have selected are the most important ones, which is why each one of them is included inside of the Waxman-Markey legislation.

We have a broad array of incentives for all energy sources. On promoting energy, we include the largest single increase in funding for energy efficiency in any legislation in the history of our country.

We include a requirement that all new buildings have to be 50% more efficient in their energy consumption by the year 2016—dramatic increases in appliance efficiency. We give $10 billion each year to the states to incentivize efficiency within their states.

We have passed a cap-and-trade bill. I think many of the executives who are represented here feel comfortable with that because they're already doing business in Europe, which has a system in place.

I think there's a higher comfort level, the larger the company, in terms of moving in this cap-and-trade direction.

We built billions of dollars of funding into Waxman-Markey for the smart grid, as we did into the stimulus package in February to telescope the time frame it will take for our nation to lay this out.

The Top Five Recommendations

1. DIVERSIFY U.S. ENERGY The U.S. should encourage all domestic energy supplies, including coal, expanded access to oil and gas coming from both conventional and unconventional sources, nuclear power and all renewables. Government shouldn't pick winners; let the markets decide.

3. CAP-AND-TRADE BILL Instead of the EPA regulating greenhouse-gas emissions, Congress should set a cap on carbon emissions that protects the U.S. economy. The cap should recognize that most energy will continue to come from fossil fuels. The U.S. should not act alone on global warming. There should be a trigger requiring a global framework.

4. FEDERAL PLAN FOR ELECTRIC GRID Congress should enact federal authority to deploy a more efficient electric grid that enables the diversification of U.S. energy supplies, gives the federal government more authority to site transmission lines through eminent domain and gives the Federal Energy Regulatory Commission the power to allocate costs.

5. DIVERSIFY TRANSPORTATION SYSTEMS In its tax, regulatory, and investment policies, the government should stimulate transportation systems consistent with the broad goals of diversifying energy sources and reducing greenhouse-gas emissions.

And finally, diversifying the transportation system: We moved, with incentives as well, more toward using natural gas as a source of energy, especially in the bus and the large truck fleet.

Winners and Losers

MS. ELSENHANS: Congressman, I'm a refiner and one of the principles that was put forward is what the task force said was a level playing field and not picking winners and losers.

There are many very good features about the bill, and I applaud those, but you've clearly picked refiners as a loser.

And you talk about Europe and being like Europe—well, it's not like Europe at all, because the Europeans got all the allowances for nothing and the European refiners were not responsible for the emissions of their customers. They were only responsible for their stationary emissions.

I fear that what we're doing is, we're basically going to disadvantage all U.S. refiners, all U.S. heavy industry—energy-intensive industries—and force those industries overseas. And so what we're going to do is end up trading off importing oil for importing products, and in the meantime, transporting jobs—good-paying jobs—from the U.S.,overseas.

I will only speak for my company. I'm very willing to have my stationary emissions be part of cap-and-trade and learn how to be more energy efficient.

But asking us to also handle the emissions of our customers puts us in great peril. And basically, our ability to cap-and-trade is going to be more important than our ability to transform crude oil into products and deliver those products to our customers.

REP. MARKEY: We put about $2.5 billion per year in the deal with the additional cost for the refining industry, but that's still subject to negotiation as the bill moves through the Senate.

In addition, we actually put in a border tariff that is triggered in 2020 that will protect energy-intensive, trade-vulnerable industries from exploitation by China or India or other countries who are not engaging in the same kind of reduction in greenhouse-gas emissions that we are, so that there's a real signal being sent to the rest of the world.

We're not going to stand by and watch our steel, aluminum, cement and other energy-intensive industries get exploited by us moving along with the Europeans.

I think we have to be realistic here as we're going forward so that we are building in the protections for those energy-intensive industries.

Challenges of the Grid

MR. CHÊNEVERT: Congressman, how do you see overcoming some of the challenges on this electrical grid, because there are municipalities involved, there are people who don't like to see a hydro tower in the back of their homes, and you've got the Federal Energy Regulatory Commission that's involved?

That was the debate that we were having this morning on the difficulty of actually siting and implementing the electrical grid, and do you see anything that can be done to accelerate that process and, therefore, welcome the renewables, for example, into the communities?

REP. MARKEY: The Obama administration has put together an interagency task force for the first time so that there's coordination in the siting of these energy facilities. They clearly are intending on unleashing this renewable energy agenda.

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